Relevance: GS-3 (Indian Economy – Exports, Industrial Policy) | Source: Lok Sabha Reply, Commerce Ministry

News

The government reported that 466 units in India’s Special Economic Zones (SEZs) shut down between FY21–FY25 due to global and domestic economic pressures.

What are SEZs?

SEZs are designated export-oriented enclaves created under the SEZ Act, 2005 to provide a competitive business ecosystem through duty exemptions, tax incentives, and single-window clearances. They play a key role in India’s external sector, contributing over 30% of national exports.

Reasons Behind Closures

  • Global slowdown & tariff uncertainties hampered export orders.
  • Investment hesitancy due to weaker FDI inflows, lack of investment protection treaties, and stiff competition from Vietnam/China.
  • COVID-19 disruptions particularly impacted FY22 operations.
  • Structural constraints: limited R&D, regulatory rigidity, compliance burdens.

Implications: Unit closures signal stress in India’s export-manufacturing base and reinforce the need for SEZ reforms, including the proposed DESH framework, to improve competitiveness and attract long-term investment.

UPSC Prelims Value Box

  • SEZs are treated as foreign territories for trade, duties, and tariffs (customs purposes).
  • SEZs must be approved and notified by the Central Government under the SEZ Act.

Positive Net Foreign Exchange (NFE): SEZ units must earn more foreign exchange than they spend to retain approval.

SEZ Act, 2005 – Governs establishment, operation, incentives, and regulation of Special Economic Zones in India.

Q. Consider the following statements about Special Economic Zones (SEZs) in India:

  1. SEZs are considered foreign territory for customs purposes.
  2. The DESH framework proposes removing the NFE requirement for certain service-oriented units.
  3. SEZs are established solely by State Governments under their industrial policy.

Select the correct answer:
 A. 1 and 2 only
 B. 2 and 3 only
 C. 1 only
 D. 1, 2 and 3

Correct Answer: A

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